What is an S-Corporation?
S-Corporations are granted a special tax status as specified
under the Internal Revenue Code. Since an S-Corporation pays
no income tax, all gains or losses of the business pass through
to the individual shareholders in proportion to their holdings.
Why would I elect to become an S-Corporation?
If you want to benefit from the limited liability of a Corporation
while maintaining the pass-through taxation of a Sole Proprietorship
then an S-Corporation is right for you.
Why wouldn’t I elect to become an S-Corporation?
S-Corporation shareholders are taxed based on their proportional
share ownership and not on how much income they have received.
In other words, a shareholder will be taxed on what they own
in the company and not the dividends that they have been issued.
If your business plan is to reinvest the business’ gains
back in to the business and only pay out small dividends to
the shareholders then an S-Corporation may not be right for
you.
How will my S-Corporation’s income be handled?
Once the filing is complete, your Corporation will then be
taxed similarly to a Sole Proprietorship in that the gains
or losses of the business pass through to the individual shareholders
in proportion to their holdings. This is known as pass-through
taxation. At the end of the tax year, the S-Corporation will
file IRS form 1120S Schedule K-1 to report each shareholder’s
share of income.
How do I elect to become an S-Corporation?
Once you have formed your general For-Profit Corporation (or
C-Corporation) at the state level you would then file an S-Corporation
application with the IRS.
How do I qualify for S-Corporation status?
To qualify for S-Corporation status, you must have an active
Corporation filed at the state level. Your Corporation’s
fiscal year must end on December 31. Your Corporation cannot
have more than 75 shareholders. Your corporation can only
have one class of stock. And finally, all shareholders must
be a U.S. citizen or a Permanent Resident Alien with a Green
Card.
What is the deadline to file my S-Corporation application?
New Corporation’s have 75 days from their filing date
to elect to become an S-Corporation. Otherwise, the Corporation
must file before March 15 for the S-Corporation status to
be active during the current tax year.
What is the difference between an S-Corporation and an
LLC?
S-Corporations and LLCs function basically the same tax wise
but differ in that LLCs are not required to have a certain
amount of members (shareholders). The members do not have
to be U.S. citizens or a Permanent Resident Aliens, in fact,
the members may be Individuals, Corporations, Partnerships,
other LLCs and even Non-Resident Aliens. Also, there is no
restrictions on the LLC’s class or classes of member
interest (stock).
What is a Employer Identification Number?
An Employer Identification Number (EIN) is a number given
to your S-Corporation by the federal government for taxation
purposes. You can not hire employees or open a bank account
in your S-Corporation's name without obtaining an Employer
Identification Number. Think of it as a social security number
for your business.
How do I get started?
If you choose to incorporate through IncLaunch.com then all
you have to do is complete our secure order form. To choose
our S-Corporation Application Service you would select “Corporation”
as the entity and then select “S-Corporation Application
Service” as an optional service. With our S-Corporation
Application Service, we will prepare the appropriate forms
for you to sign as a shareholder and then send to the IRS
to obtain your S-Corporation status.
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